BNN (Bubble News Network) has some wonderful video footage of the housing bubble. Highly recommended.
NAR's blog has NOT been updated since December 13th. Taking a break for the holidays or are they just too busy spinning the news?
Bubblicious Sign #13,424: 'Million-Dollar Condos, With a Soup Kitchen Below' (Washington Post). But, now you really can be one with the urban environment!
Florida Paradise Lost updates us on the meltdown in Florida.
November Existing Home Sales (Calculated Risk) Mr. Risk writes "As I've noted before, usually 6 to 8 months of inventory starts causing pricing problems and over 8 months a significant problem. With current inventory levels at 7.4 months of supply, inventories are now well into the danger zone and prices are falling in most regions. Nationwide prices were off 3.1% from November 2005." Lovely graphs here too!
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Those luxury soup kitchen condos are a great idea because you can eat in the soup kitchen downstairs to save money while you try to afford the overpriced condo and you can eat there after you've lost the overpriced condo to foreclosure too. How convenient!
ReplyDelete400-500,000 to live above a soup kitchen... LOL.
ReplyDeleteIt is important to remember that the median household income in DC is probably under 50,000. Ten times median income should buy something better than that, IMHO.
A Redskins fan
hmmm ... BHs consider themselves too good to live in a neighborhood where the down and out are helped by a church? yes, that sense of entitlement is evident. THEY are entitled to live where the down and outs aren't messing up their priviledged lives. How sad.
ReplyDeleteLance-
ReplyDeleteThe issue is not whether anyone is "too good" to live in a particular neighborhood. As usual, bubble believers are arguing with strawman arguments.
The issue is whether one would pay 10 times median DC household income to live in a DC neighborhood above a soup kitchen.
If someone believes in helping the homeless in soup kitchens, and admires communities that do so, I salute them. That still doesn't make it smart to pay $500,000 for the privilege.
A Redskins fan
Congrats on the WSJ post, David! I went back and read all your posts. Some of the posts on David Lereah were really funny!
ReplyDeleteI am 30 years old and renting in Irvine, CA. I make over 100K a year, but cannot afford anything more than a 700 sq ft 1bdrm condo (approx $400K) at present. So am still waiting for the right time. There are several calculators out there that let you compare rent vs buying. You have to make certain assumptions like home price appreciation, inflation etc. Since I don't expect home prices to appreciate - in fact I expect them to decline for the next couple of years in my area, it makes most sense for me to rent for now.
Anon 11:13, you may not want to buy now, but please don't rely on those calculators to tell you if you are qualified to buy now (and how much you are qualified to buy.) My personal experience with them is that they were way off. They neither reflected what lenders actually will allow in the way of ratios or what most of us are willing to undertake. Go to a "in person" lender who can better evaluate your position. I agree I don't know whether prices are higher where you are at than they are here in DC, but I find it hard to believe you can't get better with your relatively very high salary. Talk to experts. Don't rely on on-line tools .. or us here on this blog. You'll surely get some pats on the back from BHs for your position, but that won't help you any unless you are just looking for validation ... and enablement.
ReplyDeleteLance,
ReplyDeleteReally. Anyone agree with that? I thought the calculation is relatively simple. You need interest rate, PMI, money down, property tax, HOA, closing costs etc. and other things (I forget which, but I can do all this once more and post it here). Yes, you have to take a rough stab at many of these, but you can get close. Are you saying the monthly payment that it generates would be inaccurate. Can you give an example?
Now to compare rent to buy, you need to estimate home price appreciation and rent appreciation. If you expect home prices to decline over a long term by say 10-20% or more, it is not a good idea to buy, because after paying a substantially higher payment (even after tax breaks) per month vs rent, you are not building equity. In that case you are better of renting and saving that extra money in stocks or other instruments.
Now regarding my 100K salary. I can put down about 40-50K down. When I put in the rest of the numbers above I was paying more than half my take home in mortgage (even considering the tax breaks). I can give you the exact numbers, because I did this a while ago and don't remember.
Anon, I don't want to criticize your doing calcs, since I am big on doing calcs myself. However, I want to point out that being able to do calcs isn't all it takes to be a successful buyer. A good analogy would be someone being able to use medical texts to perform an operation. For many, many reasons, even if they can repeat every step given in the medical text, they shouldn't be expecting themselves to be as good at it as an experienced doctor. They are just missing too much in the way of experience and knowledge. You may be able to to the initial screening calcs, but do you know enough about finance to determine whether you would be a good candidate or not for an ARM loan or for an interest only loan? For example, if you are just starting out in your career and your career is stable, it makes a lot of sense to take a loan like an ARM that would escalate in "payent" as your salary increased ... though probably at a slower pace.
ReplyDelete
ReplyDeleteNow regarding my 100K salary. I can put down about 40-50K down. When I put in the rest of the numbers above I was paying more than half my take home in mortgage (even considering the tax breaks). I can give you the exact numbers, because I did this a while ago and don't remember.
Ouch... too much, that leaves no room for any error.
Best to wait. USB is predicting a 10% drop in US home prices in 2007.
The order of areas worst hit?
1. Florida
2. Southern California
3. Las Vegas
4. DC
Yes, DC is expected to be worse than the 10% national trend per USB bank. Interesting, eh? Link? bubble news network. :)
Neil
Lance,
ReplyDeleteSo far I was giving you the benefit of the doubt. But what you said is stupid, to put it kindly. Are you comparing simple arithmetic to the human body? And then - ARM or interest only loan? Are you kidding? Why would I take that kind of loan in this environment? I haven't heard anybody sane suggest that in the last year.
To be "qualified" for a mortgage and to "afford" a mortgage are two completely different things. The way my wife spends our money, we would be pushing it if we spent more than 30% of our gross income on PITI. Damn, I gotta put that woman in a straitjacket.
ReplyDeleteAnon asked:
ReplyDelete"Are you comparing simple arithmetic to the human body? And then - ARM or interest only loan? Are you kidding?"
No, I am making a point that you are not an expert at real estate just as you are not an expert at medicine. As anyone on this blog (BH or HH) will tell you, making a house purchase is a BIG commitment. For that big commitment you need expert advise. The simply fact that you summarily dismiss ARMs and interest only loans shows how ill prepared you are to be your own financing expert. It's not an "everybody is doing it ...or NOT doing it" thing. You need to find out what is right for YOUR circumstances ... and you are not in a position to do it for yourself, just like you are not in a position to be your own doctor.
"No, I am making a point that you are not an expert at real estate just as you are not an expert at medicine."
ReplyDeleteHey Lance... please tell us what your day job is again? I keep forgetting where you picked up all your real estate expertise.
anon asked:
ReplyDelete"Hey Lance... please tell us what your day job is again? I keep forgetting where you picked up all your real estate expertise."
Anon, my advise regarding speaking to experts holds true for any major purchase/obligation you are making ... not just real estate. My experience with real estate here isn't relevent to this advice. I would give you the same advise if you said you were going to perform surgery on yourself. And I have NO experience in medicine. It's funny how people understand the concept of seeking expert advice when it comes to one's health, but they somehow think they can be "do-it-yourselfers" when it comes to things as important as one's financial well-being. Btw, I've got a financial background, but I would still never attempt doing home financing without first speaking to people who make that their business. It's kind of like a medical doctor still goes to another doctor and doesn't try to self-diagnose and self-heal.
Lance, once and for all please stop comparing medicine to real estate.
ReplyDeleteAlso having a "financial background", you seem to be giving people all the wrong advice. Who do I talk to about buying a house:
1) A Realtor: These are the absolute worst people to be asking for advice. Their source of income is by selling houses. They have no motivation absolutely to give you correct advice.
2) A Lender: Again their job is to sell mortgages. If you meet the eligibility criterion for a loan (having provided W-2, credit scores etc.), why are they going to advice you anything but to buy the loan from them.
So please, with your vast financial background, tell me whom to ask.
Anon,
ReplyDeleteOf course it's the lender who can properly advise you. But it sounds like you've already decided that everyone is out to get you including the lender. Perhaps at this point it's a psychologist that would be the most help to you. Now, I'm not an expert on these matters mind you, but I think your condition is called "paranoia".
"My experience with real estate here isn't relevent to this advice."
ReplyDeleteSo basically... you spend tons of time on this blog trying to talk people into going farther into debt than they are comfortable going by buying a depreciating asset.
I can see why you aren't interested in talking about where you "learned" what you "know."
"Perhaps at this point it's a psychologist that would be the most help to you. Now, I'm not an expert on these matters mind you, but I think your condition is called "paranoia"."
ReplyDeleteIt seems like like you are not an expert in *any* matter. We are all trying to figure out what you really know about. Also let us put aside my psychological problems for now. I asked you a question.
What is a lender's motivation? If I were a lender, I would be doing my best to please my boss and sell as many loans as possible, without screwing up. If you are not doing this as a lender, you obviously are not very smart and will not do very well.
And since you like this analogy very much, lets say I go to my doctor. If I ask him to cut my right kidney off and substitute it with donkey's ass, he will kick me out of his office and send me a bill for the consultation. A doctor is not incentivized to perform frivolous operations. In fact it will land him in more trouble.
Anon, you answered your own question when you said:
ReplyDelete"If I were a lender, I would be doing my best to please my boss and sell as many loans as possible, without screwing up."
The italics are mine. Where do you think loans go once they're sold? Even if the lender themselves do not hold on to the loan, they have a reputation to maintain if they are going to be able to continue selling the loans they've written. And underwriters not only have standards that must be met by the entity originating the loan, but review what comes in. So, that incentive number 1 ... To not "screw up" the loans that they are either keeping in their portfolio or discounting to someone else to hold or re-sell. Incentive number 2 is their desire to keep you as a repeat customer. People move, refinance, buy second homes and investment properties that require financing, etc. Why would they put you in a loan that would ruin you and keep you from being a life-long repeat customer. Incentive number 3 are the very severe federal (and state) laws out there that include jail time for fraudulent loan documentation and the like. A lender is going to make money out of you irrespective of what kind of loan they put you into. Why wouldn't they put you into one that is best for you within the constraints of your financial position. I suspect the bigger problem out there are borrowers not realizing that oftentimes getting into your first home requires a good amount of sacrifice. You earlier comment about your wife's spending sprees is a good example. I remember having to brown bag lunches, only go to restaurants on rare occasions and forgo any real vacations for a number of years while I waited for my salary to catch up with my mortgage payments. Yes, it wasn't easy. But it was well worth it in the end.
Anon, you also said:
ReplyDelete"A doctor is not incentivized to perform frivolous operations."
that's right, doctors don't get paid thousands of dollars for performing operations.
Thanks Lance. Finally you are showing signs of some intelligence. But it is obvious that you are in the lending business.
ReplyDelete"So, that incentive number 1 ... To not "screw up" the loans that they are either keeping in their portfolio or discounting to someone else to hold or re-sell."
Yes that is what I said also. This is not rocket science. Fannie Mae and Freddie Mac have specific criteria on the kinds of loans they will back.
"Incentive number 2 is their desire to keep you as a repeat customer"
This is meaningless to me. If I buy a loan from Century today, and it ruins me financially because my house is underwater for the next 10 years and I have to move at the end of it, it is not Century's fault. It is my fault that I was dumb to take that loan.
"Incentive number 3 are the very severe federal (and state) laws out there that include jail time for fraudulent loan documentation and the like."
I am not talking of fraudulent loans. A very legitimate loan that puts me in financial distress 5 years down the road is a problem for me.
"I remember having to brown bag lunches, only go to restaurants on rare occasions and forgo any real vacations for a number of years while I waited for my salary to catch up with my mortgage payments."
Good that this worked out for you.
So to summarize it seems you are in the lending business. I don't have any problems with the Lender's. But you don't seem to get my basic issue: Should I buy a home now or not? A lender is not going to help me here. He is going to tell me I am qualified for a loan or not. This does not help. I am sure I am qualified for many loans. I make a pretty decent living. I will still reserve my decision to buy inspite of your comments.
What is sad is that Lance is NOT in the lending business. He isn't in any business related to housing at all. That is what makes this so amusing. He is not in any way shape or form an expert. He just likes to pretend to be one so he can lecture people.
ReplyDeleteA lender makes money by lending. That is their goal. That is their motivation. That is what they are paid to do.
If you go to talk to a lender about a loan they are trying to sell you a product. There is nothing wrong with that, but you would have to be an idiot not to respect that.
If I go to a car dealership and ask them if I should buy a car what are they going to say? If I ask them how much I should spend, what are they going to say? If I tell them that car is too expensive for me then they will always be able to "work something out" and will try to sell me on the payment, not the price.
The problem is today's lending practices have changed. With secondary markets for home loans and rapidly rising home prices nationwide lenders grew complacent. They started offering more money and higher leveraged products to people who NEVER would have been able to get them in the past.
We are only looking at the tip of iceberg right now. There are going to be a lot of lenders in a lot of trouble before this is over.
Lets not pretend that they know what is best for your financial future, or for that matter that they even CARE what is best for your financial future.
Hey Lance... this is timely:
ReplyDelete"Nineteen states and the District of Columbia have moved quickly to warn state-regulated lenders about the hazards to consumers from nontraditional mortgages.
Tens of thousands of state-licensed lenders and mortgage brokers are affected by the advisories, also known as a "guidance." Such loans include interest-only mortgages and other arrangements where the borrower cuts monthly costs by paying back less than full interest and principal." (from the Washington Post)
Good thing we have those lenders to advise us on what we can afford right? I am sure glad that these experts are available for us to consult.
lol
Lance said...
ReplyDelete“No, I am making a point that you are not an expert at real estate just as you are not an expert at medicine. As anyone on this blog (BH or HH) will tell you, making a house purchase is a BIG commitment. For that big commitment you need expert advise.”
“It's funny how people understand the concept of seeking expert advice when it comes to one's health, but they somehow think they can be "do-it-yourselfers" when it comes to things as important as one's financial well-being.”
Sure lance, we common folk just can’t wrap our brains around those big ole numbers and fancy words. Another misconception perpetuated by the REI to justify their commissions.
Come on folks, by all means seek advise, but remember if you go to a used car salesman, he’s gonna try to sell you a used car.